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Family Trust - Tax Implication Question

Discussion in 'General Investing Discussion' started by jezzabelle306, 3rd Apr, 2012.

  1. jezzabelle306

    jezzabelle306 New Member

    Joined:
    3rd Apr, 2012
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    QLD
    Hi,

    I'm a newbie to InvestED and was hoping to get some advice.

    My father set up a Family Trust, with my siblings and I as beneficiaries. He recently distributed approx. $200,000 from the Family Trust to me which was put in my personal bank account. I then used this $200,000 to purchase a commercial property from my father, with the intention to use it as an investment property. I purchased this property acting on behalf on a new Family Trust my husband and I recently set up to benefit our own family and future children.

    My question is, when tax time comes around in a few months, will I have to pay tax on the $200,000 that was paid to me from the Family Trust? Does anyone know a way of avoiding a big tax bill in this type of situation.

    Any tips or advice you may have will be of great help. I'm only just starting to learn about Trusts and how they work.

    Thank you.

    JezzaBelle
     
  2. Terryw

    Terryw Well-Known Member

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    Sydney
    Was the $200k income or a capital distribution? Or was it a loan? Is there a loan agreement in place? Was it distributed/loaned to you or to the trustee of the new trust?

    It was not a good idea to transfer it to your personal account for asset protection reasons.

    There would generally be no tax on loans or capital distributions.
     
  3. jezzabelle306

    jezzabelle306 New Member

    Joined:
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    Location:
    QLD
    -------------

    Thank you Terryw for your response.

    As for whether it was a loan - My father did mention that if it was going to be easier to treat it as a loan to avoid too much tax, then I could go with that option. He wasn't too knowledgeable on that process though and advised I talk to an accountant (which is the plan).

    From what I understand, the properties owned by the trust were forced to be sold as my parents are in the middle of a nasty settlement dispute. So I'm assuming the money being distributed to my siblings and I is the result of the property sales.

    My father is actually signing over the Trust to my siblings and I, so we can become Trustees for it. He said there is only a few thousand left in shares currently sitting in it. We thought we could close it down, however, if the distributions to us need to be treated as loans for tax purposes, we figure it will have to stay open.

    To answer your other question regarding if the money was distributed to me or the trustee of the new trust - The money was distributed to me personally, however I am also one of the Trustees (along with my husband) of the new trust we have set up for ourselves. The money never went into our new trust account though, it stayed in my personal account until I paid my father for the property.

    I apologise if this was confusing. Thank you for the clarification of there being no tax on loans or capital distributions. Your help is most appreciated.
    JezzaBelle
     
  4. Terryw

    Terryw Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
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    Location:
    Sydney
    Hi JB

    If the money came from the sale of trust owned properties then it may be income or capital gains. In that case then tax may be payable.

    You should really work out whether it is a loan or a gift or a distribution of capital - ideally this should be done before the transaction. If it was a loan then you need to document it properly. - what if you went through a family law dispute or a bankruptcy - would this money be yours or the trust's for example.